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Prelim Lecture 5 Assignment
Prelim Lecture 5 Assignment
MULTIPLE CHOICE
1. Pas 10, paragraph 3, defines events after the reporting period as those events,
A. Whether favorable or unfavorable, that occur between the end of reporting period and
the date on which the financial statements are authorized for issue
B. Whether favorable or unfavorable, that occur between the beginning of reporting period and
the date on which the financial statements are authorized for issue
C. Whether favorable, that occur between the end of reporting period and the date on which the
financial statements are authorized for issue
D. Whether favorable, that occur between the beginning of reporting period and the date on
which the financial statements are authorized for issue
A. Change in tax rate enacted or announced after the end of reporting period
B. Entering into significant commitments or contingent liabilities
C. Announcing and commencing the implementation of a major restructuring
D. None of these
A. The determination after the reporting period of the cost of assets purchased or the proceeds
from assets sold before the end of reporting period.
B. The determination after the reporting period of the profit sharing or bonus payment if the
entity has the present obligation at the end of reporting period to make such payment.
C. Sale of inventories after the reporting period may give evidence about the net realizable value
at reporting date.
D. All of these are adjusting entries
A. It is important for users to know when the financial statements are authorized for issue
because the financial statements do not reflect events after this date.
B. PAS 12, paragraph 17, provides that an entity shall disclose the date when the financial
statements are authorized for issue and who gave the authorization
C. Financial statements are authorized for issue when the management review the financial
statements and authorizes them issue
D. Change in tax rate enacted or announced after the end of reporting period that has a
significant effect only to deferred tax asset and liability.
PROBLEM 5-1
Rejoice Company carried a provision of 2,000,000 in its draft financial statements on12/31/2013
in relation to an unresolved court case. On 1/31/2014, when the financial statements on
12/31/2013 had not yet been authorized for issue, the case was settled and the court decided the
final total damages payable by Careless to be 2,800,000.
Solution:
Actual Liability 2,800,000
Provision Already Recognition (2,000,000)
Increase in Liability 800,000
PROBLEM 5-2
Believe Company draft financial statements showed the profit before tax for the year ended
12/31/2013 at 9,000,000. The board of directors authorized the financial statements for issue on
March 20, 2014. A fire occurred at one of Believe sites on 1/15/2014 with resulting damage
costing 7,000,000, only 4,000,000 of which is covered by insurance. The repairs will take place
and be paid for in April 2014. The 4,000,000 claim from the insurance entity will however be
received on February 14, 2014.
What amount should be reported as profit before tax in Believe financial statements?
(The profit remains at 9,000,000. The fire occurring on 1/15/2014 is a non-adjusting event
on 12/31/2013)
PROBLEM 5-3
Ilonggo Company provided the following information for the current year:
Inventory, January 1 2,000,000
Purchases 7,500,000
Purchase returns and allowances 500,000
Sales returns and allowances 750,000
Inventory, December 31 2,800,000
Gross profit rate on Net sales 20%
What is the amount of gross sale for the current year? 8,500,000
Solution:
Inv. Jan 1 2,000,000
Purchases 7,500,000
Purchase Return and Allowances (500,000)
Total Goods Available for Sale 9,000,000
Inv. Dec. 31 (2,800,000)
Cost of Goods Sold 6,200,000
PROBLEM 5-4
Lite Company carried a provision of 12,000,000 in its draft financial statements on12/31/2013 in
relation to an unresolved court case. On 1/31/2014, when the financial statements on 12/31/2013
had not yet been authorized for issue, the case was settled and the court decided the final total
damages payable by Careless to be 22,700,000.
Solution:
Actual Liability 22,700,000
Provision Already Recognition (12,000,000)
Increase in Liability 10,700,000
PROBLEM 5-5
Halagayon Company provided the following information for the current year:
Solution:
Beg. Inv. 400,000
Gross Purchases (SQUEEZE) 8,200,000
Freight In 300,000
Purchase Return (900,000)
Total Goods Available for Sale 8,000,000
End Inv. (500,000)
Cost of goods sold (1,250,000 X 6) 7,500,000
PROBLEM 5-6
In reviewing Bituin Company’s draft financial statements for the year ended December 31, 2010,
management decided that market conditions were such that the provision for inventory
obsolescence on December 31, 2010 should be increased by P 3,000,000. If the same basis of
calculating inventory obsolescence had been applied on December 31, 2009, the provision would
have been P 1,800,000 higher than the amount recognized in the statement of financial position.
What adjustment should be made to the draft profit for the year ended December 31, 2009
presented as a comparative figure in the 2010 financial statements? 0
Answer: 0
The increase in the provision for the inventory obsolescence in 2009 is ignored because this
is considered a change in accounting estimate.
PROBLEM 5-7
Intra from the statement of financial position of Adam Company showed the following:
December 31, 2010 December 31, 2009
Development costs 8,160,000 5,840,000
Amortization (1,800,000) (1,200,000)
The capitalized development costs relate to a single project that commenced in 2007. It has now
been discovered that one of the criteria for capitalization has never been met. What adjustment is
required to restate retained earnings on January 1, 2010? 4,640,000
Solution:
Development costs - December 31, 2009 5,840,000
Amortization (1,200,000)
Carrying Amount - December 31, 2009 4,640,000
“PS: The entity committed an error in capitalizing development costs. Thus, the carrying amount
of P4,640,000 on December 31, 2009 is treated as a prior period error in the statement of retained
earnings for 2010.”
PROBLEM 5-8
Rvan Company draft financial statements showed the profit before tax for the year ended
12/31/2019 at 7,000,000. The board of directors authorized the financial statements for issue on
March 20, 2020. A fire occurred at one of Rvan sites on 1/15/2020 with resulting damage costing
5,000,000, only 4,000,000 of which is covered by insurance. The repairs will take place and be
paid for in April 2020.
What amount should be reported as profit before tax in Rvan financial statements? 7,000,000
Answer: The profit remains at 7,000,000. The fire occurring on 1/15/2020 is a non-adjusting
event on 12/31/2019
PROBLEM 5-9
Blanko from the statement of financial position of Ano Company showed the following:
The capitalized development costs relate to a single project that commenced in 2017. It has now
been discovered that one of the criteria for capitalization has never been met. What adjustment is
required to restate retained earnings on January 1, 2020? 240,000
Solution:
Development costs - December 31, 2019 840,000
Amortization (600,000)
Carrying Amount - December 31, 2019 240,000
“PS: The entity committed an error in capitalizing development costs. Thus, the carrying amount
of P240,000 on December 31, 2019 is treated as a prior period error in the statement of retained
earnings for 2020.”